Once GTL Insurance coverage becomes taxable, it is subject to which tax types?

Once GTL Insurance coverage becomes taxable, it is subject to which tax types?

• A. FITW and FUTA only
• B. SS/Medi and FUTA only
• C. FITW only
• D. SS/Medi only

Answer: (D)

The correct answer, which indicates that once Group Term Life (GTL) Insurance coverage becomes taxable, it is subject to Social Security (SS), Medicare (Medi), and Federal Income Tax Withholding (FITW), actually aligns with broader tax guidelines pertaining to employee benefits. When GTL coverage exceeds certain thresholds, it is included in the employee's taxable income. This inclusion mandates that the employer withhold Social Security and Medicare taxes from the employee's pay, as these taxes apply to all forms of compensation that are subject to withholding. Additionally, Federal Income Tax Withholding is related to the overall taxable income of the employee, meaning that when GTL coverage is added to an employee's taxable income, FITW applies as well. The confusion may arise when discussing the options provided. Some options suggest a limited scope of taxes applicable to the taxable GTL coverage. However, the comprehensive tax implications cover both Social Security and Medicare, making it important for payroll professionals to recognize how these taxes are applied in conjunction with GTL to ensure compliance with IRS regulations.

The correct answer, which indicates that once Group Term Life (GTL) Insurance coverage becomes taxable, it is subject to Social Security (SS), Medicare (Medi), and Federal Income Tax Withholding (FITW), actually aligns with broader tax guidelines pertaining to employee benefits.

When GTL coverage exceeds certain thresholds, it is included in the employee's taxable income. This inclusion mandates that the employer withhold Social Security and Medicare taxes from the employee's pay, as these taxes apply to all forms of compensation that are subject to withholding. Additionally, Federal Income Tax Withholding is related to the overall taxable income of the employee, meaning that when GTL coverage is added to an employee's taxable income, FITW applies as well.

The confusion may arise when discussing the options provided. Some options suggest a limited scope of taxes applicable to the taxable GTL coverage. However, the comprehensive tax implications cover both Social Security and Medicare, making it important for payroll professionals to recognize how these taxes are applied in conjunction with GTL to ensure compliance with IRS regulations.